New Geography

Author: Joel Kotkin

  • Bubble Trouble in Silicon Valley

    Third-generation venture capitalist Tim Draper believes he has a solution for California’s problems that will make the Silicon Valley safe for its wealthy: secession. In a recent interview, Draper suggested that California be divided into six states, including one dominated by the Valley and its urban annex, San Francisco.

    By jettisoning California’s deeply troubled components – the Central Valley, the Inland Empire, Los Angeles – the Silicon Valleyites can create their own enclave, where incomes will be far higher – $63,288 per capital compared with the $46,477 for the whole state. If adopted, Draper’s proposal would mean our self-styled cognitive leaders wouldn’t have to deal with interior California’s massive poverty, double-digit unemployment, farmer demands for scarce water supplies or manufacturers seeking reasonable energy prices.

    Yet, for some in the Valley, Draper’s proposals don’t go far enough. Another venture capitalist recently suggested that the Valley do away with this whole United States thing entirely and form its own Republic. “We need to run the experiment, to show what a society run by Silicon Valley looks like,” venture capitalist Chamath Palihapitiya argued.

    The notion here is that Silicon Valley might do best if detached from the limitations of American citizenship, with firms essentially running their own countries from islands or man-made, offshore facilities, as proposed by libertarian investor Peter Thiel. What the Valley wants, then, is to be left alone – unencumbered by the masses – so that the clever crowd can live with low taxes, in a perfectly socially liberated environment, but without the encumbrances that come with having to worry about the less-cognitively gifted.

    “People,” as technology author Jaron Lanier has noted, “are the flies in Moore’s Law’s ointment.”

    This can be seen in the growing pushback over such things as massive wealth accumulation for dubiously useful ventures, and egregious privacy violations. The luxurious Google employee buses shuttling in and out of San Francisco are resented by some residents stuck riding the often poorly maintained, sometimes awful Muni.

    One top venture capitalist, Thomas Perkins was so upset over what he sees as scapegoating of the rich that he compared their condition to Jews in Nazi Germany. His directness upset some, but may have expressed more of what is really thought by smoother, younger, more PC-conscious executives.

    This is more than simply the usual case of rich people being out of touch. These are not media constructs like Kim Kardashian or Paris Hilton but very powerful, incredibly wealthy people who increasingly are a dominant force in California and national politics. Yet, their political positions often have a “let them eat cake” character. And to be sure, some new oligarchs lean right, mostly on the libertarian side, but these are a distinct minority. The notion of some in the Republican Party who see the Valleyites as saviors is nothing short of delusional.

    For the most part, executive and workers at firms such as Google, Apple, Facebook and Twitter are strong proponents of every politically correct idea from climate change legislation to opposing the expansion of suburbia and favoring gay marriage. Yet they are also becoming the wealthiest entities in the nation; besides GE, a classic conglomerate, the largest cash hoards now belong to Apple, Microsoft, Cisco, Oracle and Google, all of which sometimes have more dollars on hand than the U.S. government. Seven of the eight biggest individual winners from stock gains in 2013 were tech entrepreneurs. They were led by Amazon’s Jeff Bezos, who added $12 billion to his paper wealth; Mark Zuckerberg, who raked in an additional $11.9 billion; and Google co-founders Sergey Brin and Larry Page, who each gained roughly $9 billion.

    Given their phenomenal wealth, one observer compared Silicon Valley politics to those of a mall outlet selling Che Guevara t-shirts. They no doubt nod their heads when President Obama speaks of economic inequality, but when it comes to doing something about it, their general response is: Nevermind.

    However they color themselves politically, the oligarchs live above and apart from the rest of society – and, like Draper, want to keep it that way. Their desire to separate from the hoi polloi is natural and stems, in part, from their notion of being a class apart from mere mortals. “We live in a bubble, and I don’t mean a tech bubble or a valuation bubble. I mean a bubble as in our own little world,” Google CEO Eric Schmidt boasted to the San Francisco Chronicle in 2011. “And what a world it is. Companies can’t hire people fast enough. Young people can work hard and make a fortune. Homes hold their value. Occupy Wall Street isn’t really something that comes up in a daily discussion, because their issues are not our daily reality.”

    Certainly, politically correct gestures, like support for climate change legislation, don’t change this calculus. Google executives, for example, urge the middle class and working class to pay for subsidized, expensive energy – which they also invest in – but maintain their own fleet of private planes.

    The distinct sets of rules for oligarchs and everyone else extends even to the most personal issues. Yahoo’s Marissa Mayer, a former Google executive, banned telecommuting options for employees – particularly critical for those unable to house their families anywhere close to Yahoo’s ultrapricey Sunnyvale home town. Yet, Mayer, pregnant at the time, saw no contradiction in building a nursery in her office.

    Nor can it be said that the Valley elite gives at the office. Rather than “share the pain,” tech firms are notorious for not paying much in the way of taxes, including taxes on their properties. Facebook, for example, paid no taxes in 2012, despite making a profit of over $1 billion. Apple, which the New York Times recently described as “a pioneer in tactics to avoid taxes,” has kept much of its cash hoard as part of its basic corporate strategy.

    Individuals like Microsoft Chairman Bill Gates have voiced support for higher taxes on the rich, yet Microsoft has saved nearly $7 billion on its U.S. tax bill since 2009 by using loopholes to shift profits offshore, a Senate panel said in a recent report. As former congressman Barney Frank noted recently, Microsoft and other tech titans “have as good a record of tax evasion as anybody.”

    Such miserliness also extends to private philanthropy. There is no equivalent financed by Silicon Valley of anything comparable with the energy-industry-financed Texas Medical Center, nor can we expect any of the tech elite to leave behind anything so durable as the Carnegie libraries. For all their loud advocacy on environmental and education issues, the Valleyites are generally considered miserly when it comes to charity, as only four of the top 50 charitable contributors in 2011 came from the tech sector.

    They may give big to the elite universities, like Stanford, but they seem oddly unengaged in the struggles of the vast working-class population around them: Poverty rates in the Valley’s home of Santa Clara County since 2001 have soared from 8 percent to 14 percent, a jump of 75 percent. The self-proclaimed “capital of Silicon Valley,” the city of San Jose,notes urban geographer Jim Russell, is beginning to resemble a post-industrial “rust belt” city. To expect the Valley elite, ensconced in superpricey Palo Alto or San Francisco, to concern themselves with the Central Valley, beyond the Diablo Range to the east, is beyond wishful thinking.

    Remarkably some people, on both the right and left, believe that the Valley’s tech community should reform the nation, and recreate the government in their image. True, the likes of Harry Reid and Mitch McConnell do not inspire much confidence, but a society run by the tech lords would be very cold, and highly stratified.

    Silicon Valley’s problem, as author Jaron Lanier has put it, “is people.” Ultimately, human beings will resent being transformed into little more than digits in a Google algorithm that is then sold to advertisers. Most Americans reject being looked down on by a group that, given accidents of birth, access to money, social networks or even high intelligence, wishes not to share a state, or even a nation, with those who have less. That these attitudes now emanate from people who consider themselves both progressive and uniquely enlightened is not only hypocritical, but almost qualifies as obscene.

    This story originally appeared at The Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

  • Drought Stokes California’s Class War

    As all the Californians who celebrated the deluge of rain that fell the week before last know, it did not do much to ameliorate the state’s deep drought. We are likely to enter our traditionally dry spring, summer and fall in a crisis likely to exacerbate the ever greater estrangement between the state’s squabbling regions and classes.

    There are two prevailing views about how to deal with the drought. Farming interests in the Central Valley want the state to fund construction of additional water storage capacity so that the 700,000 acres of some of world’s richest farmland now fallowed by steep water cutbacks can be put back into production.

    The predominant view embraced by the media and ruling political class identifies the drought as yet another manifestation of relentless global warming, which means the focus should be on reducing greenhouse gas emissions. Greens balk at the idea of massive new spending on water storage for the agriculture sector, the state’s biggest water user, advocating instead for more conservation. New dams and reservoirs would have high environmental impacts, they argue, and their benefits may not justify the costs.

    Yet many believe more storage is precisely what the state needs, including Democratic Sen. Dianne Feinstein, and the state Assembly’s Democratic leadership, under pressure from Republicans and Central Valley Democrats, recently added $1 billion in funding for water storage projects to a draft water bond proposal.

    The southern part of the state, which tends to be drier than the north, has managed to avoid the worst of the drought by investing in its own storage facilities, something the more green-oriented north largely has avoided.

    “Pat Brown understood you had to build capacity and store a lot of water,” former Salinas Mayor Dennis Donahue, a lifelong Democrat and radicchio grower, told me. “As a state we have decided not to build capacity that we could have built. To make this a morality tale about climate change is an insult to the 40% of people who are unemployed in some of our rural towns.”

    California’s drought has become a national partisan issue, but storage is hardly a Tea Party or libertarian obsession. Hard-hit farming regions, in fact, are not calling so much for less government, but an expansion of water facilities largely owned and operated by state and federal agencies.

    Their strongest arguments are economic and, equally important, basic social justice. California produces upwards of of the nation’s fruits and vegetables, and the economy of the interior, and much of the central coast, revolves around agriculture. The interior region suffered the brunt of the Great Recession in California but now must endure the lost of some $5 billion in farm-related revenues; 11 of the 20 metropolitan areas with the highest unemployment in the countryare already located in the interior region of the Golden State.

    Not surprisingly many in the interior and rural parts of California see themselves as victims of wealthy coastal counties, whose economies have been bolstered by rising stock prices and absurd home valuations in Silicon Valley. These people regard high-priced water, like expensive energy, as a relatively minor inconvenience. San Francisco actually depends as much or more as any place in California on imported water, but rich urbanistas do not make their living from growing food, manufacturing or logistics. For them, high prices for resources is a kind of moral penance for lives that contribute to the threat of global warming.

    At the same time, the basic claim that California’s drought is an inevitable product of warmer temperatures seems a stretch. Anyone somewhat familiar with California water issues — as I have been for the better part of 40 years — knows that the state has a history of alternating wet and dry periods dating back hundreds of years. Indeed, while the most recent rains may not augur a new, wetter period, statewide precipitation has now rebounded to levels much closer to historic parameters.

    To be sure, human-caused environmental degradation is real and must be acknowledged, but it’s clear that  droughts have occurred, in California and elsewhere, for thousands of years. Some have lasted for a century or more. The worst dry periods, according to tree records, took place in the 1500s, somewhat before the first SUV hit the road. The 1860s saw massive rains and flooding throughout the state, followed by a severe drought that almost wiped out the state’s cattle industry.

    In the last century, California suffered from severe droughts in the 1920s, the late 1970s and again in the 1990s; all ended when rainfall resumed in subsequent years. Even over a period in which greenhouse gas concentrations were increasing dramatically, three California droughts began and ended in much the same way.

    More generally, the notion that the United States is entering an era of deep and abiding water shortage also remains dubious. A 2008 federal report on climate and drought concluded that the last decade was not as dry as either the 1930s or the 1950s.

    Just a few years ago climate activists were claiming that a major drought throughout the Southeast was a clear harbinger of howglobal warming would affect everyone. Similar claims have been made for a recent drought in the Midwest. According to the U.S. drought monitor map, neither the southeast nor the vast majority of the heartland suffers from serious drought conditions. Indeed over the last year, according to the U.S. Department of Agriculture, the percentage of the country suffering any drought at all has dropped from 66% to close to 50%.

    To be sure there needs to be more attention paid — in California and elsewhere — to water issues and conservation, as many greens suggest. But  that’s  no reason to abandon prudent water management, like storage, in the belief that massive desertification is inevitable. California’s Inland leaders are simply calling for  retrofitting and improving water facilities, many of which were built a half century ago, and create additional wet-period storage capacity. If it does not, a large part of the state’s heartland will return to a  desert more by fiat than climate, leaving behind a huge, largely unemployable, and predominately Latino underclass.

    Fortunately, not all is lost. For all his sometimes obsessive concern on climate change, Governor Jerry Brown has proposed major improvements in the state water system, much of which was built by his father. In this, he has been willing to challenge the green interests, who inevitably will try to block any new facilities. In the past, even Brown has found changing any of California’s complex environmental laws very difficult given the power of the green lobby, particularly within the courts and the regulatory agencies.

    Clearly the  more reasonable water conservation measures urged by the environmentalists should also be adopted. Vast lawns and golf courses watered from the Sierra make little sense in a state whose population and economic centers are totally dependent on imported H20. Yards consume more than half of California’s urban water supply; using more drought resistant plants — my family is replanting our front yard with desert cover — and expanding already available, highly treated recycled water for exterior irrigation are commonsense changes cities and towns throughout the southwest should pursue. Agriculture, which uses more that 75% of the state’s water supply, must also become more conservation-oriented.

    Water-hungry crops, like rice and perhaps even cotton, may need to be phased out. More use should be made of drip irrigation, which is employed extensively in other dry climates such as Israel. A greater emphasis on California’s unique advantages for specialty crops like nuts, green vegetables and fruits inherently makes more sense than growing water-hungry crops in competition with more water-rich locales.

    But unless Brown can fashion a compromise, the drought will continue to serve as propaganda fodder for the climate change community while promoting the demise of yet another basic industry, joining fossil fuel energy and, increasingly, manufacturing. This assault on tangible industries  devastates scores of poorer, less media-savvy communities. The social results of such an approach is already apparent in the state: the highest poverty rate in the nation and one-third of the nation’s welfare recipients. It may seem moral to link this drought to warming for the sophisticates who control California, but from here, the whole approach seems pretty cold indeed.

    This story originally appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Los Angeles aqueduct photo by BigStockPhoto.com.

  • High Tech Leaves NYC Behind

    Is New York City ready to contest in high-tech against Silicon Valley? Fuggedaboutit.

    Gotham is so far behind in every conceivable measurement — from engineering prowess to employment and venture funding — that even the idea is somewhat ludicrous.

    While Madison Alley has marketed the city’s tech prowess before, going back to when owners of lower Manhattan real estate promoted “Silicon Alley,” the action has been elsewhere.

    And while some urban boosters such as Richard Florida and Bruce Katz predict that new tech centers will not be the traditional suburban nerdistans, but instead the dense places where “smart” people cluster, there’s reason to be skeptical.

    To some extent, their ideas do apply in San Francisco, though mostly because of its proximity to the people and, more importantly, the venture capital in nearby Silicon Valley. It may even apply to Seattle, where large tech companies like Microsoft and Amazon are based.

    But most tech employment has continued to be concentrated in suburban locations. Even as the social media boomlet has created a few high-profile urban firms, core counties nationwide actually lost about 1.1% of their tech jobs over the last decade, while more peripheral areas gained 3.5%.

    Despite a few modest successes, New York has not produced any business that approaches the top five firms of social media. Facebook, Twitter, Pinterest, Google and LinkedIn are all based in the Valley or its urban satellite city, San Francisco.

    Crucially, New York remains a laggard in Science Technology Engineering and Mathematics (or STEM) employment, with slightly fewer tech jobs per capita than the national average, or a third as many as Silicon Valley.

    And it’s not only the Bay that New York is behind — it also trails less hyped locales such as San Diego, Raleigh, Portland, Seattle, Houston and Dallas.

    New York’s most glaring weakness is a lack of engineering talent. Behind venture capital, the greatest asset of Silicon Valley is its huge proportion of engineers, roughly 45 out of every 1,000 workers. Other high concentrations can be found in such varied burgs as San Diego, Boston, Houston and Denver.

    While the coming Cornell Technion may start to change that dynamic, Gotham has a long way to climb. Right now its concentration is 78th out of 85 metros — just behind Omaha.

    And it’s been headed in the wrong direction. Between 2001 and 2011, the New York area ranked a dismal 44th out of 52 metropolitan areas in tech growth, losing a net 84,000 jobs.

    Even as things picked up after 2009 with the social-media boom, tech employment here expanded about one-tenth as quickly as in Silicon Valley, as well as Columbus, Salt Lake City and Raleigh. Growth in Seattle was eight times faster.

    Without deep engineering talent, regions have a difficult time adjusting to technological changes that periodically reshape the high-tech industry. Silicon Valley is already beginning to move beyond social media; Google and Apple are focused increasingly on building their own pipes to move their content, and expanding into other promising tech fields from household appliances, electric cars and robotics to space exploration. New York simply does not have the engineering heft to make this transition.

    Inevitably, the social media boomlet, like the previous dotcom version, will slow, as companies merge and start moving operations to less expensive areas such as Salt Lake City, Denver, Austin and even Columbus, Ohio. Urban tech firms, particularly in media-drenched places like New York, nearly collapsed when the last bubble burst, with Silicon Alley hemorrhaging 15,000 of its 50,000 information jobs between 2000 and 2005.

    What’s more, the new tech oligarchs are gaining at the expense of New York’s traditional media industries and their elites. Since 2001, the book publishing industry, dominated by New York, has contracted nationally by 17,000 jobs. Newspapers lost 190,000 positions and magazines 50,000 in that same span. But internet publishing, dominated by the Bay Area, expanded by 77,000 jobs.

    Given the cultural tepidness of Silicon Valley, the oligarchs may still exploit talent in places like New York or LA, where artists concentrate. But while New Yorkers talk a good game, money, power and control are shifting away, perhaps permanently, to the left coast.

    This story originally appeared at the New York Daily News.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Photo by Mike Lee

  • Energy Running Out of California

    The recent decision by Occidental Petroleum to move its headquarters to Houston from Los Angeles, where it was founded over a half-century ago, confirms the futility and delusion embodied in California’s ultragreen energy policies. By embracing solar and wind as preferred sources of generating power, the state promotes an ever-widening gap between its declining middle- and working-class populations and a smaller, self-satisfied group of environmental campaigners and their corporate backers.

    Talk to people who work in the fossil-fuel industry, and they tell you they feel ostracized and even hated; to be an oil firm in California is like being a pork producer in an ultra-Orthodox section of Jerusalem. One top industry executive told me that many of his colleagues in California cringe at the prospect of being attacked by politicians and activists as something akin to war criminals. “I wouldn’t subject my kids to that environment,” the Gulf Coast-based oilman suggested.

    What matters here is not the hurt feelings of energy executives, but a massive lost opportunity to create loads of desperately needed jobs, particularly for blue-collar workers. The nation may be undergoing a massive “energy revolution,” based largely on new supplies of oil and, particularly, cleaner natural gas, but California so far has decided not to play.

    In all but forcing out fossil-fuel firms, California is shedding one of its historic core industries. Not long ago, California was home to a host of top 10 energy firms – ARCO, Getty Oil, Union Oil, Oxy and Chevron; in 1970, oil firms constituted the five largest industrial companies in the state. Now, only Chevron, which has been reducing its headcount in Northern California and is clearly shifting its emphasis to Texas, will remain.

    These are losses that California can not easily absorb. Despite all the hype about the ill-defined “green jobs” sector, the real growth engine remains fossil fuels, which have added a half-million jobs in the past five years. If you don’t believe it, just take a trip to Houston, where Occidental is moving. Houston now has more new office construction, some 9 million square feet, than any region in the country outside New York; Los Angeles barely has 1 million. Indeed, most of the office markets that have performed best in reducing vacancies since 2009 – Pittsburgh, Denver, Houston and Dallas – are all, to some degree, driven by energy.

    Everywhere you drive in Houston, now leading the nation in corporate expansions, one sees new office buildings. Last time I checked, I didn’t see much in the way of a Solyndra, Fisker or other green-business headquarters being constructed anywhere in our Golden State. Energy is driving Houston’s surge of some 50 new office buildings, led by ExxonMobil’s campus, the second-largest office complex under construction in the U.S. (after New York’s Freedom Tower).

    Chevron, once Standard Oil of California, has announced plans to construct a second tower for its downtown Houston campus, yet another signal of how that company is shifting emphasis from its roots in the Golden State to the Lone Star State. Relocating employees will have many people with whom to reminisce about old times; both Fluor and Calpine, major energy-related firms, have already made the Texas two-step.

    California clearly is squandering an opportunity to restart a large part of its economy. Texas energy has created some 200,000 new jobs over the past decade, while California has barely mustered 20,000. These energy jobs pay well, roughly $20,000 a year more than those in the information sector, according to EMSI. In 2011, this sector accounted for nearly 10 percent of all new jobs created in the nation. This has transformed much of the vast energy zone, from the Gulf to North Dakota. Houston, despite strong in-migration, now boasts an unemployment rate of 5.5 percent, almost four points below the jobless rate in Los Angeles.

    What about “green jobs”? Overall, California leads in green jobs, simply by dint of size; but on a per-capita basis, notes a recent Brookings study, California is about average. In wind energy, in fact, California is not even in first place; that honor goes to, of all places, Texas, which boasts twice California’s level of production.

    Ironically, one reason for this mediocre performance lies in environmental regulationsthat make California a tough place even for renewables. Even the New York Times has described Gov. Jerry Brown’s promise about creating a half-million new jobs as something of a “pipe dream.” Even though surviving solar firms are busy, in part to meet the state’s strict renewable mandates, solar firms acknowledge that they won’t be doing much of the manufacturing here, anyway.

    The would-be visionaries who manage the state are selling Californians a lot of pixie dust. Barely 700,000 Americans work in green energy, including building retrofits, compared with 9 million in fossil fuels. Nationwide employment in solar and wind, meanwhile, is well under 200,000. Overall, officials with fossil-fuel-related companies predict 1.4 million jobs in the sector by 2030.

    This predicament can’t be blamed on California running out of oil and gas; some estimates of the state’s oil and gas reserves as considerably larger than those of Texas. The Monterey Shale, located under the state’s economically struggling midsection, holds, according to federal Energy Department estimates, almost two-thirds of the nation’s total supply of shale oil. Tapping this source, notes a recent USC study, could bring as many as 500,000 new jobs to the state over the balance of this decade.

    Despite a bounty of fossil fuels, including along the coast, California’s oil production has continued to drop, and now ranks third among the states, behind No. 1 Texas, which has doubled its oil output in less than three years, and once-insignificant North Dakota. Californians have made a decision, based on green theology, that we don’t want to produce much of the stuff.

    Ordinary Californians bear the brunt of these policies, paying almost 40 percent above the national average for electricity. Rather than produce energy here, we appear set to import much of the oil and gas that, according to the state, still feeds well over 90 percent of California’s energy consumption.

    Particularly hard-hit has been California’s once-vibrant manufacturing sector, which has not mounted anything like the recovery being experienced in other parts of the country. From 2010-13, the country added 510,000 jobs, while California produced fewer than 8,000. Electricity prices are particularly uncompetitive, roughly twice as high in California, as those in prime competitors such Texas, Nevada, Arizona – as well as the hydro-powered Pacific Northwest.

    This has – discouraged manufacturers, such as Intel, from locating or expanding in the state. No surprise, then, that, just last week, it was revealed that the Lone Star State had also surpassed California in exports of high-tech goods.

    The worst impact of this deindustrialization is felt by blue-collar California. Even San Jose, the Central Valley’s traditional manufacturing hub, looks, as analyst Jim Russell suggests, more and more like a “rust-belt town.” Worse off still are the venerable agricultural and manufacturing regions, from the Central Valley to Los Angeles, where one person in five now lives in poverty. California’s green energy fixations, notes economist John Husing, are widening an ever-growing chasm based on “geography, class and race.”

    Despite these conditions, it’s hard to imagine a reversal of our current energy costs. The grip of green interests and their corporate allies in places like Silicon Valley suggests Californians will continue to endure ever-higher energy prices, lagging construction and manufacturing as a regular feature of the economy. This may make the green clerisy in the state happy, but is likely to have the opposite effect on the rest of us and on our economy as it becomes ever more narrowly based and fragile.

    This story originally appeared at The Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Oil well photo by BigStockPhoto.com.

  • Forget What the Pundits Tell You, Coastal Cities are Old News – it’s the Sunbelt that’s Booming

    Ever since the Great Recession ripped through the economies of the Sunbelt, America’s coastal pundit class has been giddily predicting its demise. Strangled by high-energy prices, cooked by global warming, rejected by a new generation of urban-centric millennials, this vast southern region was doomed to become, in the words of the Atlantic, where the “American dream” has gone to die. If the doomsayers are right, Americans must be the ultimate masochists. After a brief hiatus, people seem to, once again, be streaming towards the expanse of warm-weather states extending from the southeastern seaboard to Phoenix.

    Since 2010, according to an American Community Survey by demographer Wendell Cox, over one million people have moved to the Sunbelt, mostly from the Northeast and Midwest.

    Any guesses for the states that have gained the most domestic migrants since 2010? The Sunbelt dominates the top three: Texas, Florida and Arizona. And who’s losing the most people? Generally the states dearest to the current ruling class: New York, Illinois, California and New Jersey.  Some assert this reflects the loss of poorer, working class folks to these areas while the “smart” types continue to move to the big cities of Northeast and California. Yet, according to American Community Survey Data for 2007 to 2011, the biggest gainers of college graduates, according to Cox, have been Texas, Arizona and Floria; the biggest losers are in the Northeast  (New York), the Midwest (Illinois and Michigan).

    For the most part, notes demographer Cox, this is not a movement to Tombstone or Mayberry, although many small towns in the south are doing well, this is a movement to Sunbelt cities. Indeed, of the ten fastest growing big metros areas in America in 2012, nine were in the Sunbelt. These included not only the big four Texas cities—Austin, Houston, Dallas-Ft. Worth, San Antonio—but also Orlando, Raleigh, Phoenix, and Charlotte.

    Perhaps the biggest sign of a Sunbelt turnaround is the resurgence of Phoenix, a region devastated by the housing bust and widely regarded by contemporary urbanists as the “least sustainable” of American cities. The recovery of Phoenix, appropriately named the Valley of the Sun, is strong evidence that even the most impacted Sunbelt regions are on the way back. 

    A look at the numbers on domestic migration undermines the claim that most Americans prefer, like the pundit class, to live in and near the dense Northeastern urban cores. People simply continue to vote with their feet. Since 2000, more than 300,000 people have moved to Atlanta, Dallas, Houston, and Charlotte; in contrast a net over two million left New York and 1.4 million have deserted the LA area while over 600,000 net departed Chicago and almost as many left the San Francisco Bay region. These trends were slowed, but not reversed, by the Great Recession.

    The Sunbelt’s recovery seems likely to continue in the future. Immigrants, who account for a rising proportion of our population growth, are increasingly heading there. New York remains the immigrant leader, with the foreign-born population increasing by 600,000 since 2000 but second place Houston, a relative newcomer for immigrants, gained 400,000, more than Chicago and the Bay Area combined. The regions experiencing the highest rate of newcomers were largely in the south; Charlotte and Nashville saw their foreign-born populations double as immigrants increasingly beat a path to the Sunbelt cities.

    The final demographic coup for the Sunbelt lies in its attraction for families. Eight of the eleven top fastest growing populations under 14, notes Cox, are found in the Sunbelt with New Orleans leading the pack. Generally speaking, roughly twenty percent or more of the population of Sunbelt metros are under 14, far above the levels seen in the rustbelt, the Left Coast, or in the Northeast.

    This all suggests that the Sunbelt is cementing, not losing, its grip on America’s demographic future. By 2012 and 2017, according to a survey by the manufacturing company Pitney Bowes nine of the ten leading regions in terms of household growth will be in the Sunbelt.

    If the population growth rates predicted by the US Conference of Mayors continue, Dallas-Ft. Worth will push Chicago out of third place among American metropolitan areas in 2043, with Houston passing the Windy City eight years later. Now seventh place Atlanta would move up to sixth place and Phoenix to 8th. Of America’s largest cities then, five would be located in the Sunbelt, and all are expected to grow much faster than New York, Los Angeles or the San Francisco area. Overall, the South would account for over half the growth in our major metropolitan areas in 2042, compared to barely 3.6 percent for the Northeast and 8.7 percent in the Midwest.

    What drives the change? Not just the sun, but the economy, stupidos!

    From the beginning of the Sunbelt ascendency, sunshine and warm weather have been important lures and this may even be more true in the near future. But the key forces driving people to the Sunbelt are largely economic—notably job creation, lower housing prices and lower costs relative to incomes.

    Until the housing bust, states like Arizona, Nevada and Florida were typically among the leaders in creating new jobs but their performance fell off with the decline of construction. But other Sunbelt locales, notably Texas, Louisiana and Oklahoma have picked up much of the slack. This resurgence has been centered in Texas, which created nearly a million new jobs between 2007 and 2013. In contrast, arch-rival California has lost a half a million.

    Many other Sunbelt states have yet to recover jobs lost from the recession, but most of their big metros have shown strong signs of recovery. Since 2007 five of the seven fastest growing jobs markets among the twenty largest cities were in Sunbelt states. Looking forward, recent estimates of job growth between 2013 and 2017, according to Forbes and Moody’s project employment to grow fastest in Arizona, followed by Texas. Also among the top ten are several states hit hard by the Recession, notably Florida, Georgia and Nevada. No Northeastern state appeared anywhere on the list; nor did California.

    For all its shortcomings, including what some may consider the overuse of tax breaks and incentives, the much-dissed Sunbelt development model continues to reap some significant gains. The area’s history of lagging economically has long spurred Sunbelt economic developers to utilize a policy of light regulation, low taxes and lack of unions to lure businesses to their area. Sunbelt states—Texas, Florida, the Carolinas, Tennessee, Arizona—dominate the ranks of the most business friendly states in the union, notes Chief Executive magazine, findings they often cite when courting footloose businesses.

    The clear economic capital of the Sunbelt is now Houston, with some stiff competition from Dallas-Ft. Worth. Houston, the energy capital, now ranks second only to New York in new office construction and is the overall number one for corporate expansions. There are fifty new office buildings going up in the city, including Exxon Mobil’s campus, the country’s second largest office complex under construction (after New York’s Freedom Tower). Chevron, once Standard Oil of California, has announced plans to construct a second tower for its downtown Houston campus while Occidental Petroleum, founded more than fifty years ago in Los Angeles, is moving its headquarters to Houston.

    Houston’s ascendance epitomizes the shift in the geographic and economic center of the Sunbelt. The “original in the Xerox machine” for Sunbelt style growth, Los Angeles’ rise was powered by new industries like entertainment and aerospace and oil, ever expanding sprawl and a strong, tightly knit business elite. Pleasant weather and Hollywood glitz still inform the image of Los Angeles, but under a regime dominated by government employee unions, greens and developers of dense housing, it suffers unemployment almost four points higher than Houston . Nine million square feet of space is currently being built in Houston, compared to just over one million in Los Angeles-Orange which has more than twice the population. It is not in the rising Sunbelt but in places like Southern California, where jobs lag amidst high costs, that the American dream now seems most likely to die.

    Movin’ on Up

    In Houston particularly but throughout the Sunbelt, job growth critically is not tied to cheap labor, but to  industries like energy which pay roughly $20,000 more than those in the information sector. According to EMSI, a company that models labor market data, energy has  generated some 200,000 new jobs in Texas alone over the past decade. Although Houston is the primary beneficiary, the American energy boom is also sparking strong growth in other cities, notably Dallas-Ft. Worth, San Antonio, and Oklahoma City.

    Once dependent on low-wage industries such as textiles and furniture, the energy boom is pacing a  Sunbelt move towards generally better paying heavy manufacturing. Texas and Louisiana already lead the nation in large new projects, many of them in petrochemicals and other oil-related production. Of the biggest non-energy investments, three of the top four, according to the Ernst and Young Investment Monitor, are in Tennessee, Alabama and South Carolina, which are becoming the new heartland of American heavy manufacturing, notably in automobiles and steel. Since 2010, Birmingham, Houston, Nashville and Oklahoma city all have enjoyed double digit growth in high paying industrial jobs that used to be the near exclusive province of the Great Lakes, California and the Northeast.

    The Sunbelt resurgence is important in part because it offers some hope to millions of Americans who may not have gone to Harvard or Stanford, but have work skills and ambition. The region’s growth in what might be called “middle skilled jobs” that pay $60,000 or above has been impressive.

    It may come as a surprise to some, but the Sunbelt is also pulling ahead in high tech jobs. In a recent analysis of STEM (science, technology, engineering and mathematics) job growth for Forbes we found that out of out of the 52 largest regions, the four most rapid growers over the past decade were Austin, Raleigh, Houston and Nashville, with Jacksonville, Phoenix and Dallas also in the top fifteen. In contrast New York ranked #36th out of 52 and Los Angeles, a long-time tech superpower, now a mediocre #38.

    In another example of how much things are changing, when college students in the South now graduate, noted a recent University of Alabama study, they do go to the “big city” but their top four choices outside the state are in the Sunbelt—Atlanta, Houston,  Nashville, Tenn., and Dallas—and followed then by New York. The biggest net gains in people with BAs and higher are primarily in the sunbelt, led by Phoenix,   Houston, Dallas-Ft. Worth, Austin, Houston and San Antonio; the biggest losers, according to Cox’s calculations, have been New York, Los Angeles, Chicago and, surprisingly given its reputation, Boston.

    These trends may become more pronounced as the current millennial generation starts settling down into family life. Housing costs could prove a decisive factor. In terms of the median multiple, median housing cost as share of median household income, Sunbelt cities tend to be about half as expensive as New York, Boston or Los Angeles, and one third of the Bay Area.  

    To be sure, many of the “best and brightest” will continue to flock to New York, the Bay Area or Los Angeles, but many more—particularly those without Ivy degrees or wealthy parents—may migrate to those places where their paycheck stretches the furthest. The Sunbelt, with its job growth, strong middle class wages and lows housing costs, is a good bet for the future.  

    What will the future bring?

    Prosperity, Herodotus reminded us, “never abides long in one place.” Certainly the Sunbelt economy could lose its current momentum but fortunately, having been schooled by the housing bust, many Sunbelt communities are increasingly focused on improving their basic economy—jobs, income growth, and skills-based education. Tennessee and Louisiana, for example, have led the way on expanding working training, and some of most ambitious education reform is taking place in New Orleans and Houston.

    Yet, there are many threats to continued growth, both internal and external. Given his penchant for executive orders and his close ties to wealthy green donors, President Obama could take steps—for example clamping down on fossil fuel development—that could reverse the steady growth along the Gulf Coast. Any draconian shift on climate change policies would be most detrimental to the energy sector Sunbelt states.

    But President Obama will not be in office forever. In the long run, the biggest threat to the Sunbelt ascendency is internal. Some fear that as more easterners and Californians flock to the area, they will bring with them a taste for the very regulatory and tax policies that have stifled growth in the states they left behind . Most worryingly, so called “smart growth” regulations could drive housing costs up, as occurred in Florida and several other states in the last decade, and erode some of the Sunbelt’s competitive advantage.

    Perhaps the most immediate threat comes from the angry, reactionary elements on the right, who tend to be more powerful in the sunbelt than elsewhere. These groups, sometimes including the Tea Party, have taken   positions on issues like immigration and gay rights that local business leaders fear could deprive their regions of energetic and often entrepreneurial newcomers. Equally important, the right’s anti-tax orthodoxy, although perhaps not as devastating as the huge burdens placed on middle class individuals in the North and California, could delay critical outlays in transportation, parks and other essential infrastructure in regions that are growing rapidly. This is particularly true of education, a field in which most Sunbelt cities, while gaining ground, remain below the national average.

    Whatever one thinks of the motivations of the green clerisy, there are clearly environmental measures, particularly in the Sunbelt’s western regions, that these cities need to enact to protect future growth. This includes reducing the amount of concrete that creates “heat islands,” expanding parks, and shifting to more drought resistant plants.

    Fortunately, many leaders throughout the Sunbelt, particularly in its cities, are aware of these challenges, and are looking for ways to tackle them. This is driven not by the doomsday environmentalism common in California and Northeast, but grows instead out of a practical concern with stewarding critical resources and creating the right amenities to foster continued growth.

    Combined with basics like lower housing costs and taxes, it’s a common optimism about the future that really underlies the resurgence now occurring from Phoenix to Tampa. The long-term shifts in American power and influence that have been underway since the 1950s have not been halted by the housing bust. Disdained by urban aesthetes, hated by much of the punditry, and largely ignored except for their failings in the media, the Sunbelt seems likely to enjoy the last laugh when it comes to shaping the American future.

    This story originally appeared at The Daily Beast.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Houston skyline photo by Bigstock.

  • Oregon’s Sad Focus on ‘Happiness’

    Oregon is a beautiful place, and, for many of the state’s well-heeled residents, including many refugees from equally beautiful but overpriced California, economic growth not only is unimportant but is even a negative. Rather than create opportunity, the real issue, according to Gov. John Kitzhaber, is making sure the state ranks high on “the happiness index.” Forget sweating the hard stuff, and cozy up with a hot soy latte.

    There’s a problem with this. Oregon’s unemployment rate remains above the national average and underemployment – the measure of people working part-time or well below their skill level – stands at nearly 17 percent, behind only Nevada and California. Since 2007, the state has lost over 3.4 percent of its jobs, a performance much worse than the national average and even California.

    “You have to wonder about the rhetoric of happiness,” suggests economist Bill Watkins, who predicts the state won’t be back to 2007 employment levels till next year. “You need jobs for people to be happy, you would think.”

    This dearth of opportunity extends even into Portland, the state’s dominant city. One recent study showed that earnings for educated male in the city are among the worst in the country. Portland, the land of Ph.D.’s driving cabs and working in coffee shops, notes geographer Jim Russell, “attracts talent for the sake of attracting talent” but does little with them once they arrive. No surprise then that the place has become widely described the “slacker capital of the world.”

    Indeed, notes economist Bill Watkins, Oregon over the past five years has lagged in job growth behind not only the nation, but, in particular, its demographic twin, Washington state. Seattle has emerged as the most potent competitor to Silicon Valley, while Oregon’s tech sector is largely propped up by Intel’s plant in suburban Hillsboro, itself a byproduct of California’s regulatory over-reach. There has been no widespread stirring of tech, or for that matter, any strong industry in Oregon.

    “The good news is all Intel,” said Watkins, who has studied the state’s economy for a decade. “The place is run by the complacent and the comfortable. It’s a place of consumption, not production. It’s a great place, though, to relax.”

    ‘small is beautiful’

    Oregon’s parallel-universe approach to economics persisted even during the worst of the 2007-09 recession, with the state tightening its regulatory vise while raising income taxes to the highest levels outside California and Hawaii. It seems hard to imagine why a tech entrepreneur from California or Taiwan would choose a hyper-regulated, high-tax home in Oregon when they can establish themselves in Washington state, which has no income tax but many of the same physical amenities, and access to Seattle’s world-class airport.

    Perhaps I am missing the point. Growth these days is for Neanderthals and conservatives. In the past, social democrats like the great auto union leader Walter Reuther, after World War II favored economic growth as a way to create “a whole new middle class.” Many of today’s progressives actually seem to want a quainter economy, dominated by homey small farms, trendy farm-to-table restaurants and artisan cheese stores.

    Although this approach is now cloaked in progressivism, it also mirrors the biases of traditional Tories, who were fierce opponents to suburban development and utterly dedicated to the preservation of the countryside. Old conservatives in Britain generally favor strict controls on suburban and new town development, which, notes film-maker Martin Durkin, have made British housing prices among the highest and least-affordable in the world. Keep the peasants, that thinking may go, in the apartment blocks, so the gentry can better enjoy the pleasures of the countryside.

    In his influential “Small is Beautiful” (1973), the British author E.F. Schumacher opposed economic growth and favored returning to “the good qualities of an earlier civilization.” This mantra has been increasingly adopted by what is considered the left side of the political spectrum, largely due to the rise of environmentalism. Indeed, there’s a growing movement, and not just in the United States and Britain, to embrace what some call“eco-economics,” which essentially favors steady state, “sustainable” slow growth that focuses on the metric of “happiness.”

    Bhutan, a small Himalayan kingdom of less than a million people and the site of a recent Kitzhaber pilgrimage, has emerged as the “happiness” poster child. And what a fine role model this country makes for Oregon and the rest of us. One Asian development expertrecently described the country as “still mired by extreme poverty, chronic unemployment and economic stupor that paints a glaring irony of the ‘happiness’ the government wants to portray.”

    In this other “happiest place on Earth” one in four people lives in poverty, nearly 40 percent of the population is illiterate, and the infant mortality rate is five times higher than in the United States. Bhutan also has a nasty civil-rights record from expelling members of its Nepalese minority from the country.

    Bhutan, of course, is a pastoral country, but progressive urbanists also increasingly apply their “happiness” ideal to cities. Canadian academic Charles Montgomery, for example, celebrates what he sees as high levels of happiness in the city slums of developing countries. Montgomery points to impoverished Bogota, Colombia, for example, as “a happy city” that shows the way to urban development. If we can’t do a Bhutanese village, we can all aspire to life in a favela.

    These ideas have gained currency among some climate-change campaigners, such as the Guardian’s George Monbiot, who acknowledges that his goal is nothing less than “a battle to redefine humanity” and replace the notion of growth with what is commonly referred to now as “degrowth” – a planned, ratcheting down of mass material prosperity.

    Not yet widely accepted in America, at least outside Oregon, Northern California, New York City’s upper West Side and, perhaps, Vermont, this approach is all the rage in slow-growing Europe. It already has its fans on college campuses and in the media.

    ‘Happiness’ Game winners, losers

    In every case of advocacy, however well-intentioned, there are clearly winners and losers. The “politics of happiness,” as one British author puts it, have proven a boon both for the public sector and those parts of the private sector that profit from work with government. Other beneficiaries include tech oligarchs, and other connected investors, who profit from renewables with the guarantee of public subsidies, and what can be called the Trustifarians, who promote anti-growth policies through their foundations and, as a bonus, get to feel very good about themselves.

    Other winners include the media clerisy, notably in Hollywood, who propagandize against economic growth while living in unimaginable luxury, as well as academics, notably politically compliant scientists, who can win grants to promote this ideology.

    So, who loses in the “politics of happiness”? Certainly, large parts of the working class – farm workers, lumberjacks, factory operatives, and their families – who don’t have much of a role in an economy divided between service providers and the wealthy. Also left out of the equation are young families, who, perhaps forsaking the “slacker” life, now find their aspirations for a house and decent job blocked by the generally older, and better off, advocates for “happiness.”

    Probably worst off are the poor, which in predominantly white (86 percent) Oregon are more likely not to be minorities. This is particularly true in the countryside, where economic conditions, according to one top state official, are “dire” and may be close to irreversible. Unemployment and underemployment in many rural Oregon counties reaches well into the double digits. People in the interior regions of the state, much like their counterparts in California, complain that Portland’s green obsessions over such things as energy and land-use policies makes economic development all but impossible.

    In the coming years, this conflict over economics, and the perceived politics of “happiness,” is likely to grow. Unable to prove that their policies have promoted growth, today’s progressives have found a way to deal with the economy – ignore it.

    This story originally appeared at The Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    John Kitzhaber photo by S.MiRK

  • Post-Nagin, New Orleans Is On Way To Becoming A Model City

    Last week’s conviction of former New Orleans Mayor Ray Nagin on 20 charges of bribery and fraud marks the end of a tumultuous era in the city’s history, and perhaps also the beginning of a new era in American urban politics. Perhaps most remarkable was the almost total lack of protest in New Orleans over the downfall of Nagin, who had relied heavily on polarizing racial politics in his last five years in office.

    This is among the many hopeful signs in the Crescent City and its environs. Over the past year as I’ve put together a report on the future of New Orleans, I have seen a city once described by Joel Garreau in his Nine Nations of North America (1981)as a “marvelous collection of sleaziness and peeling paint,” clean up its politics, restart and diversify its economy, and begin the slow process of reducing its deep-seated crime problem.

    In the past, the “pay to play” politics and corruption epitomized by Nagin and former congressman William Jefferson were widely winked at in New Orleans as if it were just local color. “We like our politics like our rice — dirty,” a Katrina evacuee in Houston once told me with a knowing smile.

    Katrina changed that. The natural disaster was made far worse by the corruption and incompetence of virtually every key institution, starting with police and the levee boards. With the city largely underwater and much of its population forced to flee, some urban experts, such as Harvard’s Ed Glaeser, wondered if we would be better off to encourage people to leave the area permanently, perhaps with vouchers, to seek a better life elsewhere.

    Yet it is here that the real turnaround began. Business leaders, who had seen Nagin as an ally during his first term, realized he was not up to the extraordinary challenges posed by the disaster. The man who some called “Ray Reagan” for his business-friendly policies was morphing into the worst kind of racial demagogue, a kind of bayou version of Coleman Young or Sharpe James. His appeal to keep New Orleans a “chocolate city” and his now well-documented graft frustrated those who wanted to revive the city and its surrounding region.

    “When Nagin came in, he was seen as a reformer,” recalls Greg Rusovich, former chairman of the New Orleans Business Council, which includes 70 of the Crescent City’s largest businesses. “But after Katrina he really turned into a racial politician and surrounded himself with incompetents.”

    This incompetence, Rusovich suggests, slowed New Orleans’ recovery as Nagin proved unable to help direct the massive federal aid, and the many private donations, that came into the city. Eventually, voters tired of poor public services and began to demand a more competent regime.

    The current mayor, Mitch Landrieu, first elected in 2010 and easily re-electedwith strong black support this month, has brought a climate of technocratic competence to the city. With the active backing of business leaders, the city has attracted large-scale corporate investment, including a 300-person General Electric software development center, as well as a surge of videogame and entertainment companies.

    This growth was in large part sparked by a steady movement of young, educated people into the city. For decades, New Orleans’ “best and brightest” tended to move elsewhere; now the flows for the Crescent City have turned positive, including from the West Coast and the Northeast. By last year, theAtlantic Cities, the leading mouthpiece for “hip” urbanism, proclaimed New Orleans potentially the nation’s “next great innovation hub.”

    Yet for all the hoopla surrounding the growth in the information sector, it is unlikely to be enough to sustain the New Orleans region’s recovery. Not only are the total numbers of such jobs still small, in the realm of 2,600 for entertainment, STEM employment is lower than a decade ago due to cutbacks at the NASA facilities at Michoud as well as in aerospace. More important, the growth of tech and entertainment jobs will likely be insufficient to address the fundamental issues of race and poverty that have bedeviled the city throughout much of its history.

    Today, in part due to the return of evacuees, the poverty rate for the metro area stands at 19%, close to the pre-Katrina level and well above the national average of 15%. The differential between white and black incomes is some $6,000 per household above the national average and some observers, including many African-Americans, fear that the gentrification of parts of the city is reinforcing the class and racial divides that existed before the flood.

    Many African-Americans, notes city employee Lydia Cutrer, have “trust issues after many broken promises, and feel like outsiders are taking over.” Or, as Sherby Guillory, a health care worker who now lives in Houston, described the recovery efforts: “They want to build a shining city on a hill, but without the people.”

    Ultimately, to deal with these concerns, New Orleans needs to focus on the industries that drove its economy for much of its history: energy and trade. These are the primary providers of high-wage jobs, many of which are blue collar. The New Orleans area lost energy jobs from 2007-12, in part due to the Gulf drilling moratorium in the wake of the BP disaster, but activity is rising again and low natural gas prices have prompted a surge in chemical and refinery investment in south Louisiana.

    A recent report by the Greater New Orleans Community Data Center concluded that over 10,000 energy, petrochemical and related advanced manufacturing jobs could be added in the region by 2020; in contrast the digital media sector was projected to expand by roughly 2,200 positions. Finding ways to accelerate this development, while using new revenues to shore up the fragile ecosystem, needs to become the primary focus of new development efforts.

    This vision for post-Katrina New Orleans will no doubt meet opposition from those who would like the city to evolve into a humid, southern version of San Francisco. Yet this makes little sense for a place whose history, location and ethnic heritage suggest a more economically diverse future. Having survived Katrina and Ray Nagin, the next task should be to see how to make sure that the recovery reaches into those neighborhoods that have historically been left behind. Rather than stand only as a charming artifact of its past, New Orleans can become a role model in showing how cities can not only survive, but create a prosperous future.

    This piece originally appeared at Forbes.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    New Orleans photo courtesy of Jon Sullivan.

  • Sustaining Prosperity: A Long Term Vision for the New Orleans Region

    This is the executive summary from a new report Sustaining Prosperity: A Long Term Vision for the New Orleans Region, authored by Joel Kotkin for Greater New Orleans, Inc. Download the full report from GNO, Inc. here: gnoinc.org/sustainingprosperity

    The recovery of greater New Orleans represents one of the great urban achievements of our era. After decades of slow economic, political and social decline, hurricane Katrina seemed a kind of coup de grâce, smothering the last embers of the region’s vitality. In the fall of 2005 it was entirely logical to see New Orleans as just a potential exemplar of failed urbanization, much as we might see in Detroit1, Cleveland, and a host of other once great cities – for example Naples, Lisbon, Antwerp and Osaka – that have tumbled from their once great importance.2

    Yet in New Orleans’ case, disaster engendered not continued decline, but the revival of the en­tire region, its economy, and social and political institutions. Like Chicago after the great fire of 1871, San Francisco in the wake of the 1906 earthquake and fire, or New York following 9-ll, New Orleans has rebounded in ways that have defied expectations.

    Critical to making New Orleans a resilient city has been the transformation of the civic culture. This has much to do with the commitment of New Orleanians to their city – like Chicagoans, New Yorkers and San Franciscans in the past. “A city,” notes urban historian Kevin Lynch,” is hard to kill if it possesses unique cultural appeal, geographic assets and people who are determined to save the city they love.”3

    New Orleans resiliency since Katrina constitutes much more than improved levees or better evacuation procedures; more than new brick and mortar applied to what had been an aging, deterio­rating region. New Orleans has made enormous progress in cleaning up its famously corrupt political system, and also made huge strides in improving its educational infrastructure. Once considered one of the worst places to do business, the region, and the state of Louisiana, has undergone a marked improvement to its reputation. It has emerged as a good place for commerce – something of a “Cin­derella” in economic development terms.4 Allison Plyer of the Greater New Orleans Community Data Center put it, “Greater New Orleans is in some ways rebuilding better than before”.5

    Our analysis shows this progress in a host of indicators. Once a below-average job producer, the region has expanded its employment since the 2007 recession far faster than the national average. It recovered all the jobs lost in the recession by 2012 – and then some – while the nation remained three percent below its pre-recession level. Entrepreneurial activity also has grown faster than the national average by a wide margin.6

    More important still, the region finally began to reverse a demographic decline that, for a gen­eration or more, saw young, educated people and families depart for other locales to seek out a better life. The concentration of 25 to 35 year olds has increased far more quickly in the region than it has in the nation as a whole. Indeed since 2007, New Orleans region has experienced the fastest growth in educated population in the nation.7

    Many economic trends favor the region’s continued ascendency. These include the still nascent US energy boom, which represents arguably the greatest shift in global economic power since the end of the Cold War and the rise of China; the massive flow of investment, domestic and foreign, into lower-cost locales and most particularly into the Third Coast, the burgeoning region around the Gulf of Mexico; and finally the expansion of US trade with Latin America and the Caribbean basin.

    To these powerful forces we can also add demographic and social factors that work to the region’s advantage. One key is a relatively low cost of living, which, in effect, gives area residents and businesses a leg up on their East and West coast rivals. This is critical in attracting net migration from those regions, with their storehouse of educated residents and skilled workers.8 Another force is the breadth of skills that can be easily found in the region, including higher paid skilled professionals ex­perienced in transportation and material moving, installation, maintenance and repair, construction, manufacturing and energy.

    A future scenario can be constructed where greater New Orleans emerges as one of the bright­est spots in the North American economy. Not only does the region have natural advantages in terms of energy resources and transportation, it can claim primary sources of higher-wage employment. It also possesses a cultural cachet that attracts educated workers, but in a cost and regulatory environ­ment that appeals to business investors.

    This is most notable in the growth of the region’s rapidly evolving information industry, in­cluding software, videogames and an expanding film/television industry. Over the past five years, New Orleans has come to enjoy a locational concentration equal to that of New York, and has emerged as a major player in this sector.

    Challenges Ahead: Economic, Social and Environmental

    As the region moves further from the immediate post-Katrina crisis, the great momentum of the last five years is clearly slowing down. Job creation remains positive, but has gradually fallen towards national norms. Indeed, since 2010, after years of running ahead, the region’s job growth rate actually trailed the national average. This could be simply a sign that, after recovering more slowly, the rest of the country is now catching up. But the slowdown relative to other cities should be taken seriously, as it could represent a loss of critical momentum.

    “Concert Of Economic Forces” That Can Make Recovery Permanent

    To overcome its legacy of poverty and inequality, the New Orleans region needs to focus not on just one sector but on five critical ones. In a highly competitive national and global economy, re­gions need to work on their unique strengths, establishing advantages that can lead to more, and bet­ter, job creation. Most particularly, the region needs to develop a broad, but still highly selective, base of industries that can create the higher-wage jobs necessary for the uplift not of a few New Orleani­ans, but for the many.

    1. The first, and most evident, is the region’s cultural legacy, which serves as a major source of jobs for local people as well as a lure for talented people from elsewhere. This, of course, includes the still very important tourism industry, but also encompasses generally higher-wage professions in film, television, video game software and even medical research.

    The growth in information sector employment, something relatively new to the region, rep­resents a clear breakthrough. It allows the region to take advantage of its essential cultural assets, by attracting companies and highly skilled workers. Although it is unlikely that the New Orleans region will ever become as tech-dependent as, say, Silicon Valley — which may prove a good thing, given that industry’s volatility — New Orleans can look forward to a sustained increase in high-paying, and high-visibility, employment. Perhaps most critically, it has an excellent opportunity to make itself the cultural capital of the Third Coast, the burgeoning region around the Gulf, something the region desperately needs and a role that New Orleans is uniquely positioned to fulfill.

    Yet although these industries are important, they alone cannot sustain a long-term, broad recovery. Wages in the tourism industry and the arts tend to be low – one reason for the city’s per­sistently poor income distribution in the past – and higher-wage jobs, except in engineering services and entertainment, remain below national norms in total jobs and will take many years to reach true critical mass. Perhaps most critically, these industries alone cannot produce enough high-wage skilled jobs for the region’s working class population.9

    2. The river system. Its location at the shipping terminus of the Mississippi River, across the regions the region’s ports – New Orleans, South Louisiana, St. Bernard, Manchac, Plaquemines and Grand Isle Port – is the historic reason for the region’s existence and one of the key factors in its future success. The region needs to work to compete successfully with its Third Coast rivals, notably Houston, as well as Mobile and Tampa. Growing trade with the Caribbean and the completion of the Panama Canal expansion project increase the opportunities for expanded logistics and cargo han­dling. In addition, the river provides an ideal spur to new industrial production, such as the Nucor Steel plant in St. James Parish, which some see as the precursor of a new zone, akin to Germany’s Ruhr Valley, that could emerge between New Orleans and Baton Rouge.

    Given the devastation of the region’s unique ecological environment, the river presents unique challenges to be addressed. At the same time, the river offers the region new opportunities to develop yet another nascent sector: environmental remediation. The RESTORE Act funds will bring billions to the Gulf help alleviate the region’s own environmental issues, but could also support the unique expertise and skills related to the profound challenges of maintaining coastal regions. This can be seen already in the over $210 million that has flowed to expert Louisiana companies as a result of Hurricane Sandy.10

    3. The energy revolution. Perhaps no sector has more potential to generate higher wage jobs across the region, particularly for working class residents, than the current energy revolution. This is rapidly shifting economic power to North America, and it’s a shift for which the region has a front row seat. Louisiana and the greater New Orleans area boast enormous oil and gas reserves, but the region has not kept up with Houston or even smaller cities in terms of energy-related jobs. Yet there has been continued growth in many upstream services, such as petro-industrial development and exploration, even if headquarters employment has dropped. With the resolution of the BP disaster, it is hoped that the region will recover more employment in this high-wage sector.

    4. Environmental remediation. This is both a major challenge and an opportunity for economic development. Simply put, there is no long-term future for the region if the environment that sup­ports it collapses. Katrina, after all, was not the first ecological disaster to hit the region, and it won’t be the last. Finding ways to restore coastal wetlands and manage the river and other water resources in a sustainable manner not only preserves the environment that New Orleanians cherish, but could also create significant business opportunities down the road; More than 4% of Dutch GDP is related to water management, and more than 50% of that is related to international projects and the export of water expertise and services.11

    The region has already received $1.3 billion from various BP criminal settlements that will be applied to river diversion and barrier island restoration projects. Over $600 million is already budget­ed for projects being let in 2014 alone, signifying great potential to expand the region’s expertise and capacity in this sector.12

    5. The construction of infrastructure. New industries require new or improved roads, better freight and harbor access, reliable, inexpensive electricity, and improved air service. The region is moving ahead on many of these fronts, from the expansion of the airport to major port improvements and the development of a new biomedical district along the Canal Street corridor. A region that has historically lagged in forward-looking improvements is showing clear signs of determination to catch up with competitors in the country and around the world.13

    Yet all these efforts must be done in conjunction with a long-term commitment to preserve the very environment that New Orleanians treasure. This is the ultimate challenge to sustaining and expanding regional prosperity in the era ahead.

    This concert of economic forces is critical to driving down poverty rates and raising incomes across class and racial lines. This can only be realized if there is a conscious effort to promote broad-based, sustainable growth in a diversity of industries. This requires placing a greater emphasis, among other things, on higher education, particularly on engineering and the biosciences, and, per­haps even more, on community colleges, technical schools and certificate training. The area may now be attracting more college-educated workers, but it still lags behind the national average, reflecting a legacy of out-migration of skilled workers over the past few decades.14

    This is the executive summary from a new report Sustaining Prosperity: A Long Term Vision for the New Orleans Region, authored by Joel Kotkin for Greater New Orleans, Inc. Download the full report from GNO, Inc. here: gnoinc.org/sustainingprosperity

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

    Endnotes
    1 http://www.newgeography.com/content/003897-root-causes-detroit-s-decline-should-not-go-ignored
    2 http://www.theatlantic.com/business/archive/2012/01/the-10-fastest-growing-and-fastest-declining-cities-in-the-world/251602/#slide16
    3 Lawrence J. Vale and Thomas J. Campanella, “Conclusion: Axioms of Resilience”, in The Resilient City, editors, Lawrence J. Vale and Thomas J. Campanella, Oxford University Press, (New York: 2005), pp.335-353
    4 http://chiefexecutive.net/best-worst-states-for-business-2012
    5 The New Orleans Index, by Allison Player, 2013
    6 Allison Plyer, Elaine Ortiz, Ben Horwitz and George Hobor, The New Orleans Index at Eight: Measuring Greater New Orleans Progress Towards Prosperity, Greater New Orleans Community Data Center August 13, 2013, p.6-7
    7 newgeography.com/content/002044-americas-biggest-brain-magnets
    8 http://www.newgeography.com/content/002950-the-cities-where-a-paycheck-stretches-the-furthest
    9 Author’s analysis of data from EMSI, Inc.
    10 http://www.bp.com/en/global/corporate/sustainability/environment/managing-our-impact-on-the-environ­ment/complying-with-regulations/clean-water-act-provision.html; http://www.restorethegulf.gov/council/about-gulf-coast-ecosystem-restoration-council
    11 Dale Morris, Senior Economist, Royal Netherlands Embassy
    12 http://www.nfwf.org/gulf/Pages/home.aspx;
    13 http://biodistrictneworleans.org/
    14 Plyer, etal, op. cit., p.12

  • Southern California has Aging Issues

    Back in the 1960s, and for well into the 1980s, California stood at the cutting edge of youth culture, the place where trends started and young people clustered. “The California teen, a white, middle-class version of the American dream” raised in a world of “suburbs, cars, and beaches,” notes historian Kirse Granat May, literally shaped the national image of youth, from the Beach Boys and Barbie to Gidget.

    In those times, California, particularly the Southland, was literally becoming ever younger, as more families and migrating 20-somethings moved in. The beaches of Southern California, so attractive to youth, evoked a care-free, athletic, somewhat hedonistic culture; California also was the place where young people, free from the traditional constraints of places East, felt free to innovate, in everything from music and board shorts to the earliest PCs.

    Yet today, you increasingly have to color California, particularly Orange and Los Angeles counties, a pale grey. Once evocative of youth, almost mythically so, these counties are aging far faster than the national average. From 2000-12, notes demographer Wendell Cox (www.demographia.com), the average median age of Los Angeles and Orange County residents rose by 10 percent, almost twice the national rate and well above the 6.6 percent rise for the state overall.

    This aging trend will continue, if current conditions remain in place. One recent USC study predicts that the Los Angeles area, due in large part to declining immigration, will continue aging rapidly. In the next two decades, the study projects, Los Angeles County will gain 867,000 senior citizens and have 630,000 fewer residents younger than 25.

    In contrast, the Bay Area – even rapidly aging Marin County – has been graying more gradually. In part, the Bay Area’s slower aging is less a reflection of rising birth rates, as was the case in California’s youthful heyday, than the movement of 20-somethings, particularly since 2007. Since then, the San Francisco area has led the nation in migration by the 20-34 age group. It does far worse as people get into prime child-bearing years, ranking 30th in migration among the 52 largest U.S. metropolitan areas.

    Not surprisingly, San Francisco – with 80,000 more dogs than kids – has the lowestpercentage of youngsters of any major American city. Even when more-suburban San Mateo County is added, the Bay Area ranks 40th in growth among people under age 4. San Jose-Santa Clara shows a very similar pattern, with people arriving in their 20s and leaving in their child-bearing years.

    Southern California right now is not experiencing much youth migration. Hollywood, great weather and the beaches are still all here – in a climate enhanced by a greater cultural diversity – but young people still are not moving here in droves. From 2007-12, this region ranked a mediocre 31st in migration by 20-somethings. Overall, we are losing millennials, while other regions, such as Washington, D.C., Houston, Denver and Austin, Texas, are luring them.

    Perhaps even more troubling, the region also ranks 47th for migrants in their prime child-bearing years and 32nd in terms of newborns. If not for the Inland Empire, which does markedly better with the 30- and 40-something groups, Southern California would be starting to look like a multicultural version of supergrey Japan. A recent report for theU.S. Conference of Mayors projected that, by 2042, Los Angeles will rank 58th of 70 U.S. regions for population growth, with the slowest growth of any major city in the South or West.

    This low youth migration combined with a steady erosion of the key parental cohorts, suggests that rapid aging could soon replace rambunctious youth as the region’s greatest demographic challenge. An ever-shrinking percentage of families and young workers is not good for the local economy. It deprives local companies of both new employees and an expanding customer base. Older people may be great for lower crime rates and filling hospitals, but not so much for the overall economy, as they often do not work and tend to consume less than younger people.

    Why is this occurring, and can anything be done to address this descent into regional senility? One answer lies in the region’s high housing prices. The L.A. area’s median multiple – the ratio of home price to a homeowner’s annual income – is now more thantwice that of more economically dynamic regions like Houston, Austin, Dallas, Atlanta, Nashville, Tenn., and Phoenix.

    This price pressure has sharply reduced opportunities for young couples to buy houses, while older residents, often working into their sixties, seventies or even eighties, stay in their homes, further reducing opportunities for the next generation. Mortgage applications have fallen dramatically in recent months, after some signs of resurgence. It’s now largely investors who are holding the market up.

    In Southern California, the combination of inflated house prices and weak job growth means not only that fewer young people are coming but, once here, they are having fewer babies, or will move once they take that plunge. This trend is spreading to the Inland Empire, the region’s primary nursery, where declining incomes and higher rents are making family formation an ever-more dicey proposition.

    Once a major lure for the parental age groups, the Inland area has dropped to 26th in attracting people in their 30s. This is not surprising given the toxic combination of a weak economy and rising costs; the percentage of Inland Empire households paying at least half their incomes in rent has risen from 20 percent to 30 percent since 2007, a reflection of rising rents amidst shrinking salaries. In Los Angeles, roughly a third of households see half their earnings go to rent.

    How can we address this decline? The response of many homebuilders, spurred by the planning agencies, is to reduce the size of houses, even in far-flung suburban areas. This may solve some problems in the eyes of density-obsessed planners but, is not likely to be attractive to families at a time when American house sizes, after a short period of contraction, are expanding again. Less space at higher prices in Southern California may not be so appealing to families who can get more, at lower cost, in a host of markets across the country.

    This leaves the Southland with the alternative, seen in the Bay Area, of attracting younger professionals who eventually may leave. But a torpid economy does not help in luring ambitious millennials, and building high-density housing in the absence of expanding incomes and opportunities seems something of a fool’s errand. If they can’t afford the urban-hipster enclaves of New York or San Francisco, the coveted member of the “creative class” may find themselves better off settling first in the burgeoning urban districts of less-expensive cities like Houston, Dallas or Nashville, places where they also can eventually hope to get a decent job and buy a home.

    Clearly, this region, with its still-impressive assets, should be attracting both new families as well as younger singles. But this cannot reliably be done unless we begin looking at ways to encourage older people to move out of their homes, perhaps by reforming Proposition 13 and providing other incentives. We could also start allowing builders again to construct the kind of housing families need and clearly want – detached homes where land is affordable. As for the 20-somethings, what they need most is not forced density or transit-oriented development but the whiff of opportunity, something a “smart” policy agenda seems best-suited to stifle.

    The premature aging of this region represents an existential challenge, a harbinger of further, long-term decline. Unless addressed by policies that reignite economic growth and expand opportunities, the youthfulness of this region will exist merely a cherished myth, seen in old sitcoms on Nickelodeon but increasingly not in our neighborhoods.

    This story originally appeared at The Orange County Register.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

  • The U.S. Middle Class Is Turning Proletarian

    The biggest issue facing the American economy, and our political system, is the gradual descent of the middle class into proletarian status. This process, which has been going on intermittently since the 1970s, has worsened considerably over the past five years, and threatens to turn this century into one marked by downward mobility.

    The decline has less to do with the power of the “one percent” per se than with the drying up of opportunity amid what is seen on Wall Street and in the White House as a sustained recovery. Despite President Obama’s rhetorical devotion to reducing inequality, it has widened significantly under his watch. Not only did the income of the middle 60% of households drop between 2010 and 2012 while that of the top 20% rose, the income of the middle 60% declined by a greater percentage than the poorest quintile. The middle 60% of earners’ share of the national pie has fallen from 53% in 1970 to 45% in 2012.

    This group, what I call the yeoman class — the small business owners, the suburban homeowners , the family farmers or skilled construction tradespeople– is increasingly endangered. Once the dominant class in America, it is clearly shrinking: In the four decades since 1971 the percentage of Americans earning between two-thirds and twice the national median income has dropped from 61% to 51% of the population, according to Pew.

    Roughly one in three people born into middle class-households , those between the 30th and 70th percentiles of income, now fall out of that status as adults.

    Neither party has a reasonable program to halt the decline of the middle class. Previous generations of liberals — say Walter Reuther, Hubert Humphrey, Harry Truman, Pat Brown — recognized broad-based economic growth was a necessary precursor to upward mobility and social justice. However, many in the new wave of progressives engage in fantastical economics built around such things as “urban density” and “green jobs,”  while adopting policies that restrict growth in manufacturing, energy and housing. When all else fails, some, like Oregon’s John Kitzhaber, try to change the topic by advocating shifting emphasis from measures of economic growth to “happiness.”

    Other more ideologically robust liberals, like New York Mayor Bill de Blasio, call for a strong policy of redistribution, something with particular appeal in a city with one of the highest levels of income inequality in the country. Over time a primarily redistributionist approach may improve some material conditions, but is likely to help create a permanent underclass of dependents, including part-time workers, perpetual students, and service employees living hand to mouth, who can make ends meet only if taxpayers subsidize their housing, transportation and other necessities.

    Given the challenge being mounted by de Blasio and hard left Democrats, one would imagine that business and conservative leaders would try to concoct a response. But for the most part, particularly at the national level, they offer little more than bromides about low taxes, particularly for the well-heeled investor and rentier classes, while some still bank on largely irrelevant positions on key social issues to divert the middle class from their worsening economic plight.

    The country’s rise to world preeminence and admiration stemmed from the fact that its prosperity was widely shared. In the first decades after the Second World War, when the percentage of households earning middle incomes doubled to 60%, it was no mirage, but a fundamental accomplishment of enlightened capitalism.

    In contrast, the current downgrading of the middle class undermines the appeal of the “democratic capitalism” that so many conservative intellectuals espouse. In reality, capitalism is becoming less democratic: stock ownership has become more concentrated, with the percentage of adult Americans owning stock the lowest since 1999 and a full 13 points less than 2007. The fact that poverty — reflected in such things as an expansion of food stamp use — has now spread beyond the cities to the suburbs, something much celebrated among urban-centric pundits, is further confirmation of the yeomanry’s stark decline.

    How our political leaders respond to this challenge of downward mobility will define the future of our Republic. Some see a future shaped by automation that would “permanently end” what one author calls “the age of mass human labor,” allowing productivity to rise without significant increases in wages. In this world, the current American middle and working class would be economically passé.

    One would hope business would have a better option that would restart upward mobility. Lower taxes on the investor class, less regulation of Wall Street, and the mass immigration of cheap workers — all the rage among investment bankers, tech oligarchs and those with inherited wealth — does not constitute a compelling program of middle-class uplift. Nor does resistance, particularly among the Tea Party, to make the human and physical infrastructure investment that could help restore strong economic growth.

    Fortunately history gives us hope that this decline can be turned around. The early decades of the Industrial Revolution saw a similar societal decline, as once independent artisans and farmers became fodder for the factory lines. Divorce and drunkenness grew as religious attendance failed. But a pattern of reform, in Britain, America and even Germany, helped restore labor’s place in the economy, and rapid growth provided the basis not only for the expansion of the middle class, but remarkably improvements in its well-being.

    A pro-growth program today could take several forms that defy the narrow logic of both left and right.  We can encourage the growth of high-wage, blue-collar industries such as construction, energy and manufacturing. We can also reform taxes so that the burdens fall less on employers and employees, as opposed to those who simply profit from asset inflation. And rather than impose huge tuitions on students who might not  finish with a degree that offers employment opportunities, let’s place new emphasis on practical skills training for both the new generation and those being left behind in this “recovery.” Most importantly, the benefits of capitalism need be more widely shared if business hopes to gain support from the middle class for their agenda.

    This story originally appeared at Forbes.com.

    Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.